The Philippine peso headed for the best week in a year as the nation’s economic growth attracted investors amid bets the U.S. will hold off from paring stimulus measures that have boosted dollar supply.
The currency pared a monthly drop as the Philippine Stock Exchange (PCOMP) Index rallied more than 11 percent in the past three days after entering a bear market this week. Philippine gross domestic product expanded 7.8 percent in the first quarter, the most in the region. The peso rose for a fourth day today after a report this week showed the U.S. economy expanded less than previously estimated, boosting optimism the Federal Reserve will delay a plan to cut asset purchases. Global funds bought $65 million more local shares than they sold in the last two days.
“The reaction to the possible Fed tapering is a bit overdone and we should see some interest in Philippine assets as investors realize that our economic fundamentals are intact,” said Rafael Algarra, executive vice president and head of financial markets at Security Bank Corp. in Manila.
The peso rose 0.3 percent today and 1.1 percent in the week to 43.257 per dollar at 11:48 a.m. in Manila, according to Tullett Prebon Plc. That’s the biggest five-day advance since June 2012, which pared this month’s loss to 2.3 percent.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 25 basis points, or 0.25 percentage point, to 7.94 percent. The measure slid 147 basis points since June 21.
Fed Chairman Ben S. Bernanke said June 19 the central bank may trim its $85 billion a month of debt buying this year and end it in 2014 as long as the economy performs in line with its projections.
Bangko Sentral ng Pilipinas Governor Amando Tetangco told a forum on June 26 that Philippine economic fundamentals remain intact and the central bank’s low-interest-rate policy will continue as inflation is near the bottom end of the 3 percent to 5 percent target. Consumer prices may have risen 2 percent to 2.9 percent this month, Tetangco said yesterday.
Bangko Sentral cut the rate on its special deposit accounts thrice this year to 2 percent and kept its overnight borrowing rate at a record low 3.5 percent. Inflation in May at 2.6 percent was unchanged from a 13-month low in April.
“Low inflation and interest rates will continue to support growth,” Security Bank’s Algarra said.
The Philippines’s Bureau of the Treasury kept the size of its debt auction plan for the next quarter unchanged and said on June 25 it will offer 10-year securities targeting individuals along with three- and five-year notes in the three months ending September.
The yield on the 6.125 percent bond due October 2037 fell 10 basis points today and 30 basis points this week to 5.20 percent, according to Tradition Financial Services. The rate climbed to 6.25 percent on June 24, the highest since the notes were first sold in October.
“It’s probably a stretch to think asset prices will go back to record levels but we will be seeing some interest after the recent rout,” Algarra said.
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